SPECIAL FEATURE

The Merchants Creating Synergies Indefinitely Measures for Increasing Corporate Value of Investees Seen through Coordination with the Business of FamilyMart Holdings

ITOCHU has positioned FamilyMart UNY Holdings Co., Ltd., as an important business supporting long-term increases in corporate value and is advancing cross-Group initiatives. In this special feature, we will explain our unique approach toward increasing the corporate value of operating companies with our expertise in the consumer-related sector.

38 Business Model Reform Centered on FamilyMart Utilize functions to expand the flow of commercial distri- On September 1, 2016, FamilyMart Co., Ltd., and UNY bution in order to synergistically grow trading income, investment returns, and dividends Group Holdings Co., Ltd., merged to form FamilyMart UNY Holdings. This integration led to the creation of a (Number of domestic stores) massive retail group, ranking No. 3 in Japan with gross Seven-Eleven Japan 19,422 operating revenues in excess of ¥1.2 trillion. At the New FamilyMart 18,125 same time, this merger represented a large step forward 13,111 FamilyMart 12,995 in strengthening the consumer-related sector operations Sunkus 5,130 of ITOCHU, the largest shareholder of FamilyMart UNY Holdings. (As of February 28, 2017)

ITOCHU acquired roughly 30% of the issued shares FYE 2017 of FamilyMart in 1998. Our first foray in the retail field, this After management integration

acquisition necessitated a reform to the Food Company’s FYE 2016 18,125 stores Special Feature 11,656 stores business model. Branching out from its traditional model FYE 2009 focused on wholesale and logistics businesses, the Food 7,404 stores Company adopted a model based on the Strategic Inte- FYE 1999 Time of Investment grated System (SIS) strategy, which entailed constructing about 5,000 stores a value chain encompassing procurement of raw materi- als in upstream areas; processing, manufacturing, and intermediate distribution in midstream areas; and retail in Expand downstream areas. With this new model, we have sup- store network ported increases in the competitiveness of FamilyMart by providing the functions we possess as a general trading company. Today, we are utilizing the information gained Retail through points of contact with consumers to create a strong, bottom-up value chain that stretches from down- stream areas (retail) to upstream areas (raw material). These efforts are creating a wider range of growth oppor- Increase transaction volumes for the ITOCHU Group tunities for the Food Company as well as for various other ITOCHU Group businesses. Food product and peripheral businesses A Stronger Value Chain Under the control of FamilyMart UNY Holdings, FamilyMart merged with Co., Ltd., thereby forming a network of approximately 18,000 stores Non-food products in Japan and growing to a scale that rivals the industry leader. Taking advantage of the resulting stronger value chain, the ITOCHU Group is exercising its collective strength to generate massive synergies with FamilyMart. Services On the following pages, we will explain our strategic directives based on several keywords.

Operational support

Expand the flow of commercial distribution to increase transaction volumes for the ITOCHU Group

ITOCHU CORPORATION ANNUAL REPORT 2017 39 Special Feature VALUE CHAIN

KEYWORD1 Peripheral Business Initiatives FamilyMart has evolved as a provider of lifestyle infrastructure by expanding its functions; branching out from supply- ing food products and other items necessary to daily lives, the company now provides financial services as well as a wide array of other services. This robust lineup of offerings allows ITOCHU to generate synergies with regard to not only food, but also daily items, supplies, and various service fields. Future initiatives will include stepping up coordina- tion with peripheral businesses from a long-term perspective. Specific areas we are eyeing include raw material supply, product development support, logistics efficiency improvement, IT-powered labor saving, e-commerce businesses, and financial businesses.

Subsidiaries Food Product and Peripheral Business Initiative Examples Associated companies Coordinating food value chains to ensure the optimal form for all processes that ITOCHU take place before items arrive at store shelves, including formulation of raw material procurement schemes, product development, manufacturing, processing, and ­procurement of containers and packaging materials.

Packages for Rice ball wrapping films ITOCHU PLASTICS ready-to-eat products, etc. Boxed lunch containers, etc.

Intermediate distribution Raw Product Delivery Manufacturing Sales agents Food product and peripheral businesses, non-food products materials planning (wholesales / logistics) NIPPON CAR NIPPON ACCESS ( Page 42) SOLUTIONS Provision of the majority of logistics ( Century group) services for food and non-food products for FamilyMart stores

Non-Food Product Initiative Examples Providing the daily items that support lifestyle and the supplies needed for everyday store operation.

New Year’s cards ITOCHU PULP & PAPER

Daily items FamilyMart collection daily items ITOCHU Retail Link (detergent, plastic bags, clean- Sanipak Company Of Japan ing sheets, etc.) and umbrellas

Chopsticks, individual-use hand Supplies towels, take-out item containers ITOCHU Retail Link Store items (coffee cups, etc.) supporting operation, Plastic bags, cleaning supplies etc. Uniforms Textile Company

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Service Initiative Examples Supplying customers with a wide range of services closely related to their daily lives, including financial services and ticket sales through multimedia terminals.

Financial services Famima T Cards POCKET CARD

Ticket sales famima.com

ICT & Financial Business Company Cards issued by POCKET CARD Co, Ltd. The collected data is used to facilitate effective Other services Haco BOONmini famima.com marketing and product development, in ITOCHU INTERACTIVE addition to contributing to customer loyalty.

POSA cards CONEXIO Special Feature

Affordable and highly convenient inter-convenience store delivery service that utilizes FamilyMart’s existing distribution network 24 OPEN

Services

Food product and peripheral businesses, non-food products

Operational support

Operational Support Initiative Examples Providing multifaceted support for the efficient operation of Major Targets for Strengthening ­FamilyMart’s nationwide network of approximately 18,000 stores, Peripheral Businesses going beyond product sales, services, and store operation to assist in • Logistics efficiency improvement background areas. • IT-powered labor saving ITOCHU Techno-Solutions • E-commerce businesses System development Support of operational efficiency through develop- ment of operational management systems • Financial businesses, etc.

ITOCHU Plantech Electricity supply High-voltage electricity supply service that reduces store electricity costs

Construction materials ITOCHU Kenzai

ITOCHU Metals 3Rs+W services* Development of a nationwide network of partners to * Reduce, reuse, recycle, provide store fixture maintenance, reuse, recycle, and waste management and waste disposal services

Contact centers BELLSYSTEM24

ITOCHU CORPORATION ANNUAL REPORT 2017 41 Special Feature OUR VALUE Support for Lifestyle and Social Infrastructure

KEYWORD2 Reinforcement of Food Value Chain In addition to the increase in transaction volumes attributable to the merger of FamilyMart and Circle K Sunkus, the ITOCHU Group also seeks to generate substantial and even more wide-ranging synergies by strengthening product development capabilities, improving the efficiency of distribution activities, and consolidating production bases to reduce costs.

Subsidiaries Associated companies Overview of Value Chain Scheme ITOCHU Business partners

Ready-to-eat Fried chicken Fried chicken Counter coffee RIZAP collaboration products (rice balls, (Spicy Chicken, Eggs (FAMICHIKI) (FAMIMA CAFÉ) products boxed lunches) Chicken Steak)

Japan Food Supply Japan Food Supply ITOCHU Food UNEX I-hiyoko Raw ITOCHU Food Sales and Marketing Chicken suppliers CP Group (GUATEMALA), (ITOCHU FEED materials Sales and Marketing, ITOCHU FEED S.A., etc. MILLS group) etc. MILLS, etc.

Sugar, Confection- ary Materials, Coffee Product & Dairy Products Food Products planning / Ready-to-eat Meat Products Meat Products ITS Farm (ITOCHU Department Marketing & Retail Manufacturing / producers Department Department FEED MILLS group) Food Products Department Sales agents Marketing & Distribu- tion Department

Wholesales / Logistics NIPPON ACCESS

Retail

FAMIMA CAFÉ ITOCHU coordinates with FamilyMart with regard to RIZAP Collaboration Products coffee bean procurement Through the business alliance schemes, product develop- between RIZAP GROUP, Inc., NIPPON ACCESS Is Supporting One of the ment, and equipment selec- FamilyMart, and ITOCHU, we are Industry-Leading Store Networks tion and procurement and planning a lineup of jointly devel- NIPPON ACCESS, INC., is a food distribution company also arranges processes oped products as a centerpiece of boasting one of the widest operation scopes in Japan. including collection and our initiatives to address health- Its unique infrastructure is compatible with all tempera- refinement of coffee beans. care needs. ture ranges, from dry to chilled and frozen, and has been deployed at 449 locations nationwide. NIPPON ACCESS is providing background support for FamilyMart, which is undertaking the brand conversion of Circle K Sunkus stores to FamilyMart stores.

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KEYWORD3 Delegation of Retail Operation to Industry Professionals Retail operations require precise management to maintain a full and

appropriate product lineup, effectively select products based on local Special Feature consumer preferences, and realize ideal store layouts. ITOCHU is a general trading company that has traditionally focused on intermediate distribution and upstream raw materials procurement. However, this perspective is not one that should be introduced into retail operations. Based on this belief, management of operating companies in Family- Mart UNY Holdings’ convenience store and general merchandise store businesses has been delegated to industry professionals with extensive retail experience. ITOCHU, meanwhile, will contribute to increasing Representative Director and Representative Director and earnings capacity at FamilyMart UNY Holdings by building upon collab- President, President, FamilyMart Co., Ltd. UNY CO., LTD. orative relationships to develop peripheral businesses. Takashi Sawada Norio Sako

KEYWORD4 Focus on Effective Governance and Organic Coordination ITOCHU has been dispatching management personnel to FamilyMart UNY Holdings. These individuals help implement effective governance while setting management directives. At the same time, professionals from vari- ous fields are assigned to generate synergies by promoting organic coordination that blurs the boundaries between our business divisions.

Full Utilization of the ITOCHU Group’s Strengths Currently, top-priority measures at FamilyMart UNY Holdings include moving ahead with two important integrations: the integration of conveni- ence store brands and the maximization of intra-group synergies through the integration of the strengths of operating companies centered around FamilyMart and UNY. With regard to the policies set in our medium-term management plan, coordination with the ITOCHU Group will be key to “strengthening store features and services.” Specifically, the ITOCHU

Representative Director and President Group’s resources will be a great asset with regard to financial, e-com- FamilyMart UNY Holdings Co., Ltd. merce, and other functions. ITOCHU is FamilyMart UNY Holdings’ largest Koji Takayanagi shareholder. However, we will be fully utilizing the strengths of the ITOCHU Group in order to improve our own corporate value.

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